Cost Savings by Using a Fulfillment Company

Cost Savings by Using a Fulfillment Company

By Kevin Sides / May 26, 2016

Startups and small business owners commonly ask: Can I still save money if I’m not shipping thousands of orders each month?

 

The answer is Yes!

 

At ShipMonk, we've tailored our fulfillment services and pricing structure specifically with small e-commerce businesses and startups in mind. It's not uncommon for us to speak with a business owner—one who’s seemingly happy fulfilling orders internally—but who then, after reviewing ShipMonk’s services, recognizes that outsourcing fulfillment can not only save time but a whole lot of money. Needless to say, it doesn’t take long for savvy business owners to realize that the resources saved by outsourcing can be put to much better use, thereby helping to grow their business faster.

 

While there are several expenses to keep in mind when fulfilling orders in-house, here’s a simple list that to give you a start in factoring costs:

  • Warehouse Rent
  • Warehouse Equipment
  • Labor
  • Utilities
  • Insurance
  • Materials
  • Inventory Management Software
  • Shipping

 

Warehouse Rent

The fixed cost of leasing a space large enough to accommodate growth can restrict cash flow that really could—and should—be better spent on acquiring new customers. Also, if you run your business from your home or office, you’ll have to commute to the warehouse regularly basis to ensure everything is running smoothly. You might even have to employ a warehouse manager to oversee your fulfillment center.

 

Warehouse Equipment

Often overlooked, the equipment—shelves, label printers, packing tables, pallet racks, etc.—required to correctly set up an efficient pick, pack, and ship operation can add up quickly

 

Labor

You can pick and pack orders yourself, but chances, are your areas of expertise do not include fulfillment. Instead, fulfillment takes time away from what you're really good at, which is how you got into your business in the first place. You do have the option to hire Picker Packers so that you don’t have to do personally fulfill orders. Except then you’ll interview, hire, train and try to retain them throughout the year. This becomes even more challenging and time-consuming if your business is seasonal enough that you have to adjust the number of personnel needed on a month-to-month or even day-to-day basis.

 

Utilities

Don't forget to factor utilities—water, sewer, electric, etc.—associated with running a warehouse. Even if your lease or rent contract is all-inclusive, you’re still paying for utilities.

 

Insurance

Just like utilities, the moment you rent warehouse space, you’ll have to obtain claims insurance to cover—to name a few—theft, fire, flood, roof collapse, missing inventory, damage during handling, insufficient facility maintenance… The list goes on.

 

Materials

You start out selling products to pay for all the warehouse expenses, but then you start incurring a new set of costs associated with fulfilling orders. Boxes, tape, cartons, shrink wrap, labels, safety equipment—those are all necessary expenses to ensure your orders make it to your customers in the same condition they left the warehouse.

 

Inventory Management Software

You're selling more and more orders—which is great because your fulfillment costs per unit start to decrease—but how are you controlling inventory? When you’re just starting out, you might be able to get away with manually fulfilling orders that come in through your website. As you grow, though, you'll need to invest in inventory management software—for instance, ShipStation or TradeGecko—that integrates directly into your shopping cart or marketplace for automatic product importation. But you can eliminate the costs of using pricey software by choosing a fulfillment company that’s powered by inventory management software. Most reputable fulfillment firms use software to ensure order accuracy, and you'll have access to their system so you can review analytics, forecast inventory and permeate more revenue streams.

 

Shipping

Even if you haven’t saved a dime from implementing items 1 thru 7, you’ll absolutely cash in the savings when it comes to shipping costs. Not only will a fulfillment company to guide you regarding the very best practices to reduce shipping costs, but you’ll get access to their extremely low shipping rates due to their overall shipping volume per day.

 

On top of all that, having professionals handle your customs forms, bill of ladings, shipping contracts and other restrictions exponentially reduce the number of risks your business is exposed to by in-house order fulfillment.

 

Here’s a graph we've developed to better illustrate the cost of fulfilling orders in-house vs. outsourcing to an order fulfillment company.

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